Problem:
Kline Construction is an all-equity firm that has projected perpetual earnings before interest and taxes of $879,000. The current cost of equity is 18.3 percent and the tax rate is 34 percent. The company is in the process of issuing $6.2 million of 8.5 percent annual coupon bonds at par.
Required:
Question: What is the levered value of the firm?
A. $5,278,164
B. $5,541,085
C. $6,422,225
D. $6,713,185
E. $7,385,695
Note: Provide support for your underlying principle.